Value Investor Daily #67

Celsius Down 71%, What's Next?

November 26, 2024

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Is Celsius Stock Worth Considering After a 71% Decline?

Celsius (CELH) shares are down 71% from their peak, raising the question: Is this energy drink powerhouse a value play in disguise?

Here’s a breakdown of the key points from the analysis by Travis Hoium.

  • Current Valuation: Shares trade at a forward P/E of 30 and price-to-sales ratio of 4.6. It’s priced as growth stock.

  • Inventory Overhang: Recent revenue decline was driven by Pepsi reducing overstocked inventory, not lower consumer demand.

  • Quarter Performance: Revenue fell from $384M to $266M in the latest quarter, but the company remained profitable.

  • Profitability Strength: Celsius operates an asset-light model, outsourcing production, which keeps profitability intact even in tough quarters.

  • Earnings Potential: Normalized net income is estimated at $300M annually, implying an EV-to-normalized-earnings-ratio of 17 based on current enterprise value.

  • Balance Sheet: Celsius has $904M in cash on its current balance sheet vs. $456 million of total liabilities and no long-term debt.

  • Market Dynamics: Consumer demand for Celsius remains strong despite temporary distribution issues.

  • Margins Under Pressure: Increased discounting has worried investors about future profit margins.

  • International Growth: Revenues outside North America are still small but growing significantly in Europe (+16%), Asia-Pacific (+28%), and other regions (+111%).

  • Revenue Potential: Expansion into international markets is expected to drive long-term growth and improved profitability.

  • Valuation Appeal: At an enterprise value of $5.1B, the company could offer strong upside if it achieves $300-500M in normalized annual cash flow.

  • Acquisition Possibility: Pepsi, a major partner, may eventually acquire Celsius to integrate its distribution and branding, offering downside protection.

  • Growth Outlook: Investors are cautious about shrinking margins and competition but optimistic about double-digit growth potential.

  • Investor Sentiment: Current prices around $29.75 per share are approaching attractive value territory.

  • Buy Target: Shares around $20 would be a “no-brainer” buying opportunity

  • Risks: Challenges include margin compression, shrinking revenue, and rising competition in the energy drink space.

What do you think—is Celsius stock attractive here?

Thank you for reading today!

Happy Investing,
Value Investor Daily

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